The Asset Growth Effect in Stock Returns

Journal of Investment Management, Third Quarter, 2010

Posted: 26 Oct 2010  

Michael J. Cooper

University of Utah - David Eccles School of Business

Huseyin Gulen

Purdue University - Krannert School of Management

Michael J. Schill

University of Virginia - Darden School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: October, 25 2010

Abstract

We document a strong negative relationship between the growth of total firm assets and subsequent firm stock returns using a broad sample of U.S. stocks. Over the past 40 years, low asset growth stocks have maintained a return premium of 20% per year over high asset growth stocks. The asset growth return premium begins in January following the measurement year and persists for up to five years. The firm asset growth rate maintains an economically and statistically important ability to forecast returns in both large capitalization and small capitalization stocks. In the cross-section of stock returns, the asset growth rate maintains large explanatory power with respect to other previously documented determinants of the cross-section of returns (i.e., size, prior returns, book-to-market ratios). We conclude that risk-based explanations have some difficulty in explaining such a large and consistent return premium.

Keywords: Balance sheet growth, investment, anomalies

JEL Classification: G00

Suggested Citation

Cooper, Michael J. and Gulen, Huseyin and Schill, Michael J., The Asset Growth Effect in Stock Returns (October, 25 2010). Journal of Investment Management, Third Quarter, 2010. Available at SSRN: https://ssrn.com/abstract=1697716

Michael J. Cooper (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Huseyin Gulen

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Michael J. Schill

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4071 (Phone)
434-243-7676 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/schill.htm

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